Crypto: 18 States Challenge Gary Gensler And The SEC In A Historic Legal Battle

The Securities and Exchange Commission (SEC) is facing an unprecedented legal challenge as 18 U.S. states unite to contest its aggressive policies towards the cryptocurrency industry. This historic lawsuit, led by Kentucky Attorney General Russell Coleman, marks a major escalation in the conflict between federal regulators and advocates for digital assets.

18 U.S. States Sue the SEC Over Its Crypto Crackdown

On November 14, an alliance of 18 Republican attorneys general, led by Russell Coleman from Kentucky, filed a lawsuit against the SEC and its commissioners. Among the plaintiff states are Texas, Florida, Tennessee, and Utah, supported by the DeFi Education Fund, a nonprofit organization dedicated to Web3.

The states accuse the SEC of illegally expanding its jurisdiction over the crypto sector without congressional approval. According to the complaint, this excessive regulatory expansion has significantly hindered innovation in one of the most dynamic sectors of the U.S. economy.

The coalition particularly denounces the coercive actions taken against major players like Coinbase, Ripple, and Kraken, which they view as examples of unjustified regulatory authoritarianism.

The Howey Test at the Heart of the Controversy

The complaint directly challenges the SEC’s use of the Howey Test, a legal framework from 1946, to classify cryptocurrencies as securities. The states contest the agency’s broad interpretation of this test, particularly citing the favorable ruling for Ripple from July 2023.

Under the leadership of Gary Gensler since 2021, the SEC has ramped up repressive actions against the crypto industry. The agency has notably imposed a $30 million fine on Kraken and targeted other major players like Uniswap Labs and OpenSea.

The chairman of the SEC maintains his position, stating at a recent conference that “the vast majority of crypto assets have not yet proven their sustainable utility” and that their failure has caused significant harm to investors.

Faced with this large-scale legal battle and a shifting political landscape, the future of crypto regulation in the United States could see significant changes. This lawsuit marks a decisive turning point in the relationship between the states and the federal regulator of financial markets.